Kraft, Cadbury Deal Shows Governance Gap

Odysseas Papadimitriou is founder and chief executive officer of Evolution Finance, the parent company of Wallet Blog and Card Hub, an online marketplace for credit cards.

NEW YORK ( TheStreet) -- In a New York Times article in November, Andrew Ross Sorkin explored the corporate governance implications of the proposed takeover of the British confectioner Cadbury ( CBY) by the American company Kraft Foods ( KFT). The article says the boards of British companies act as advisers, but the decision to sell is up to the shareholders.

Since the article was written, the takeover of Cadbury by Kraft has been complicated by various developments, but the issues discussed by Sorkin still hold. Sorkin used the proposed takeover as an opportunity to discuss the corporate governance differences in the U.S. and U.K.

In the British system, shareholders have more control over the future of their investments. In the American system, much of the control of the company is ceded to corporate boards, so takeovers generally require the board's blessing to move ahead.

While I applaud Sorkin for presenting both sides of the issue, the debate over whether a company ought to be controlled by its investors or its board is innately dangerous. What is really being discussed here is the viability of democracy. While Sorkin's story focuses on whether shareholders have the expertise to know how companies should be run, the broader implication is whether the average person has enough sense to be responsible for his vote.

Average people should be empowered to make decisions concerning their welfare. This includes having the ability to take a position, by voting, on issues that will affect them fiscally. This is true of national and state elections, and it should also be true for corporate decisions. Otherwise, the implication is that the average person can't be trusted to make decisions for themselves and that a "board of directors" of sorts is necessary for other decisions involving a vote.

If our country were run the way we allow our companies to be run, we would have a dictatorship instead of a democracy. A small group of powerful figures would decide national policy. That's what "democracy" means under the American board of directors system. We wouldn't tolerate such a system for our government because we don't believe it's a viable way to run a country. So why debate whether it's a viable way to run a corporation? If we think democracy is an acceptable way to pick our nation's leaders, then it should be an acceptable way to run something less dire like the operations of an American company.

In discussing corporate governance, it's too easy to suggest that we are embracing a different set of values for a particular situation, but if we believe in democracy, we ought to advocate for its merits whenever possible and we should protest anti-democratic principles in general.

The British system isn't just different from ours, it's more democratic. It might serve as a model for America to revamp its own board system, which is run from the top down against the democratic principles upon which our nation was founded.